second quarter report - royal canadian mint · narrative discussion 39 weeks ended october 1, 2016...

THIRD QUARTER FINANCIAL REPORT FISCAL 2016

NARRATIVE DISCUSSION..............................PAGE 2

FINANCIAL STATEMENTS AND NOTES.........PAGE 15

R O YAL C AN AD I AN M I NT

NARR ATIVE DISCUSSION

39 weeks ended October 1, 2016

(Unaudited)

ROYAL CANADIAN MINT – THIRD QUARTER REPORT 2016 of 41

NARRATIVE DISCUSSION

BASIS OF PRESENTATION

The Royal Canadian Mint (the “Mint”) has prepared this report as required by section 131.1 of

the Financial Administration Act1 using the standard issued by the Treasury Board of Canada

Secretariat. This narrative should be read in conjunction with the unaudited condensed

consolidated financial statements.

The Mint has prepared these unaudited condensed consolidated financial statements for the 13

and 39 weeks ended October 1, 2016, and September 26, 2015, in compliance with

International Financial Reporting Standards (IFRS).

FORWARD LOOKING STATEMENT

Readers are advised to refer to the cautionary language included at the end of this Management

Discussion & Analysis (MD&A) when reading any forward-looking statements.

FINANCIAL HIGHLIGHTS

Consolidated profit after taxes increased to $2.4 million from a loss of $43.6 million in the

same period of 2015. In 2015, the Mint recorded a pre-tax impairment loss of $65.5

million following a detailed strategic review and assessment of implications of the 2014

legislative changes to the Royal Canadian Mint Act. The consolidated profit before taxes

and impairment decreased to $4.2 million versus $10.7 million in the same period for

2015. This decrease is due to lower margins in our Numismatics business and a

slowdown in Bullion demand in the quarter.

The shipment of coins and blanks to foreign countries increased 54% during the quarter

reflecting a higher demand for the Mint’s multi-ply products and its ability to meet

customer requirements.

To achieve its objectives, the Mint strives to continually improve profitability through prudent

financial management and efficient operations. The Mint measures its performance by using

metrics meaningful to customers, business partners and employees. The measures below allow

the Mint to monitor its capacity to improve performance and create value.

1 Financial Administration Act, R.S.C., 1985, c. F-11




(Unaudited)


Consolidated results and financial performance

(in CAD $ millions for the periods ended October 1, 2016 and September 26, 2015)

13 weeks ended 39 weeks ended

1-Oct-16 26-Sep-15 restated (note 3)

$ Change % Change 1-Oct-16 26-Sep-15 restated (note 3)

$ Change % Change

Revenue $ 553.8 $ 762.1 $ (208.3) (27) $1,752.0 $ 1,686.5 $ 65.5 4

Pre-Impairment profit before taxes

4.2 10.7 (6.5) (61) 33.1 27.0 6.1 23

Impairment - (65.5) 65.5 100 - (65.5) 65.5 100

Profit before taxes 4.2 (54.9) 59.1 108 33.1 (38.5) 71.6 186

Profit (loss) after taxes

2.4 (43.6) 46.0 106 25.1 (35.8) 60.9 170

As at

1-Oct-16

31-Dec-15 restated (note 3) $ Change % Change

Cash $ 93.3 $ 140.8 $ (47.5) (34)

Inventories 86.8 79.1 7.7 10

Capital assets 181.6 188.0 (6.4) (3)

Total assets 395.6 439.3 (43.7) (10)

Working capital 134.4 128.0 6.4 5

Note: The Mint's fiscal year end is December 31.

Consolidated revenue for the quarter ended October 1, 2016, declined 27% to $553.8 million

from $762.1 million compared with the same period in fiscal year 2015. The decline in revenue

is attributable primarily to softer demand for bullion products offset by an increase in Circulation

Products and Solutions revenues. Operating expenses for the quarter declined 9% to $31.4

million from $34.5 million pre-impairment in the same period in fiscal year 2015. This is mainly

due to a reduction in sales and marketing expenses for this quarter.

Consolidated profit before taxes for the quarter declined 61% to $4.2 million from $10.7 million

pre-impairment compared to the same period in fiscal year 2015. This is due to lower margins in

the Numismatics business and the softer market demand for bullion products.

Consolidated profit after taxes increased 106% to a profit of $2.4 million from a loss of $43.6

million after impairment of $65.5 million in the same period of fiscal year 2015.

Lower liquidity at October 1, 2016 compared to December 31, 2015 was mainly due to a

dividend payment of $31.0 million to the Government of Canada, capital expenditures of $8.8

million and various net operating activities of $7.2 million.




(Unaudited)


Consolidated revenue for the 39 weeks to October 1, 2016 was $1,752.0 million, a 4% increase

compared to the same period in fiscal year 2015 driven by increases in all for-profit businesses.

Consolidated profit before taxes for the year to date increased 23% to $33.1 million from $27.0

million pre-impairment in the same period of fiscal year 2015. The increase in profit is being

driven primarily by lower operating expenses. Profits after taxes increased 170% to $25.1

million compared to a loss of $35.8 million after impairment of $65.5 million in fiscal year 2015.

2016 actual results versus 2016 budget

The Mint experienced higher than planned consolidated revenues for the 13 weeks and 39

weeks ended October 1, 2016 due to the strength in Bullion revenues which was partly driven

by higher precious metal prices. The Mint is tracking below the budgeted consolidated profit due

to lower than expected revenues and margins from our Numismatics business.

CORPORATE DEVELOPMENTS

Restatement of Prior Periods – Numismatic revenue

In the course of the preparation of the interim condensed consolidated financial statements for

the quarter ended October 1, 2016, the Mint identified an adjustment relating to prior periods

requiring restatement, relating to the sale of numismatic Face Value products.

In the past, sales of numismatic Face Value products were recorded as revenue, along with a

provision for expected redemptions and returns which was based on historical redemption and

return patterns for other numismatic products. In 2016, the Mint conducted an extensive review

of the Face Value program and redemptions and returns to date. Face Value products have

different characteristics than other numismatic products as they have a Face Value equal to

their purchase price which, combined with the unlimited redemption and return period permitted

by the Mint’s current redemption and return policies and practices, make Face Value products

significantly more likely to be redeemed or returned than other numismatic products.

Consequently, the historical redemption and return patterns for other numismatic products

cannot be used to estimate the redemptions and returns for Face Value products and no

reasonable, reliable alternative method exists. As a result of this review, it was determined that

revenue should not be recognized until a reasonable estimate of redemptions and returns can

be made.

The Mint believes the primary factors influencing its ability to develop a reliable estimate of

redemptions and returns to be the market price of silver and the term over which redemptions

and returns may be accepted. At October 1, 2016, the market price of silver was significantly

less than the Face Value of these coins, and it is currently not the intention of the Mint to place

an expiry date on the current redemption and return policies. As a result, a provision

representing the cumulative value of unredeemed/unreturned Face Value products and the

costs of redemptions and returns, net of the value of the corresponding silver content, was




(Unaudited)


recorded in Q3 2016 with retrospective adjustment to the inception of the Face Value program.

This net provision will increase each period with new sales and decrease or increase each

period as the market price of silver (in U.S. dollars) increases or decreases and the Canadian

dollar weakens or strengthens with respect to the U.S. dollar. These movements in the net

provision will impact profit (loss) each period.

As a result of this change in accounting, the consolidated balance sheet at December 31, 2015

and the consolidated statements of operations and changes in equity and comprehensive

income for the year ended December 31, 2015 and the 13 week and 39 week periods ended

September 26, 2015 were restated.

The following table summarizes the impact of the restatement for the 13 and 39 weeks ended

September 26, 2015:

(in $ millions)

Increase (decrease)

As previously

reported Restatements As restated

As previously


Revenue $ 931 $ (13) $ 918 $ 2,143 $ (33) $ 2,110

Cost of sales 875 - 875 1,987 (4) 1,983

Net foreign exchange gains (1) 2 1 (1) 4 3

Profit for the period (34) (10) (44) (10) (26) (36)

13 weeks ended September 26, 2015 39 weeks ended September 26, 2015

Prior Period Reclassification – Bullion Products and Services

Historically, all of the revenue associated with bullion product sales was recorded on a gross

basis; however there are several different sales streams for bullion products. In Q3 2016, the

Mint initiated a review of the different bullion sales transaction types during which it was

determined that it was more appropriate to recognize revenue from bullion sales on a net basis

when the transaction involves inventory that a customer has on deposit with the Mint to create a

product for them of a different format, for instance, a Gold Maple Leaf. As a result, the revenue

and cost of precious metals from Bullion sale transactions involving customer inventory on

deposit with the Mint (“Customer inventory deals”) are now recorded on a net basis, with only

the commission and incremental value-added manufacturing services recognized as revenue.

This change in presentation has no impact on profit (loss).

The consolidated statement of operations for the year ended December 31, 2015, for its interim

periods and for the 2016 interim periods has been adjusted to reflect this change in the

presentation of revenue and cost of sales.

The following table summarizes the impact of the reclassification for the 13 and 39 weeks ended

September 26, 2015:




(Unaudited)


(in $ millions)

Increase (decrease) As restated Reclassification

As restated and

reclassified As restated Reclassification

As restated and

reclassified

Revenue $ 918 $ (156) $ 762 $ 2,110 $ (424) $ 1,686

Cost of sales 875 (156) 719 1,983 (424) 1,559

Net foreign exchange gains 1 - 1 3 - 3

Profit for the period (44) - (44) (36) - (36)

13 weeks ended September 26, 2015 (1)


(1) Includes Numismatics restatement as per note 3 and excludes the other reclassification adjustment as

per note 22 of these condensed consolidated financial statements

Customer Acquisition Program Transformation

After five years of acquiring new customers and growing its overall Numismatic business

through its Face Value program, the Mint is changing the way it will attract future customers to

coin collecting. Effective January 1, 2017 the Mint is no longer selling Face Value coins. Sales

continued in Q4 2016 as the Mint prepared to wind down the program. Starting in 2017, the

Mint will leverage the considerable appeal of Canada 150 as a prime opportunity to launch new

products and programs including a new suite of affordable, entry-level collector coins which will

continue to grow its customer base and its Numismatics business. The Mint introduced the first

of these coins in the fall of 2016 and more will follow throughout 2017.

Canadian Circulation Operations Return to For-Profit Model

On October 25, 2016, the Minister of Finance tabled Bill C-29, A Second Act to implement

certain provisions of the budget tabled in Parliament on March 22, 2016 as well as other

measures. In particular this Act amends the Royal Canadian Mint Act to enable the Mint to

anticipate profit with respect to the provision of all goods or services, and removes the

restriction that the Mint shall not anticipate profit with respect to the provision of any goods or

services to Her Majesty in right of Canada.

Bill C-29 received Royal assent on December 15, 2016. Accordingly, the Mint will recognize

profit from the provision of any goods or services to Her Majesty in right of Canada beginning

December 15, 2016.

The Mint expects to come to an agreement with the Department of Finance on an updated

Memorandum of Understanding that governs the provision of circulation products and services

in mid 2017.

2017-2021 Corporate Plan and 2017 Capital Budget Submitted to Department of Finance

In October 2016, the Mint’s Board of Directors approved RCM’s 2017-2021 Corporate Plan and

2017 Capital Budget, which was subsequently submitted for the approval of the Governor in

Council on the recommendation of the Minister of Finance. To reflect the recent impact of both




(Unaudited)


Bill C-29 and the Face Value program in its planning period, the RCM plans to submit an

updated 2017-2021 Corporate Plan and 2017 Capital Budget to the Minister of Finance.

Circulation Coin Recycling Program

In the past few years, the Mint has been working closely with two service providers to support its

recycling program. During Q2 and Q3, both suppliers lost the participation of one major financial

institution. The Mint’s senior management is meeting with executives from the main service

provider to assess options to support this function. The goal is to re-establish a robust recycling

program in Canada to support an efficient supply of coinage maximizing the amount that is

recycled versus the amount that is newly produced.

Revenue by Program and Business

(in CAD $ millions for the periods ended October 1, 2016 and September 26, 2015)


1-Oct-16

26-Sep-15 restated (note 3)

$ Change

% Change

1-Oct-16 26-Sep-15

restated (note 3)

$ Change

% Change

Canadian Circulation Program

$22.9 $21.0 $1.9 9 $69.0 $69.0 $- -

Circulation Products and Solutions

29.2 18.1 11.1 61 50.9 46.0 4.9 11

Bullion Products and Services 465.4 684.1 (218.7) (32) 1,521.1 1,461.8 59.3 4

Numismatics 36.3 38.9 (2.6) (7) 111.0 109.7 1.3 1

Operating Highlights and Analysis of Results

Canadian Circulation Program

The Mint’s core mandate is the management of the Canadian circulation coinage system. It

accomplishes this by continuously monitoring and forecasting supply and demand; collaborating

with Canadian financial institutions, armored car companies and other key stakeholders to

manage the distribution of coins across the country; processing and recycling existing coins;

and producing new coins when required. It is also responsible for safeguarding the integrity of

Canada’s coinage through ongoing research, development and implementation of increasingly

sophisticated security features.

Explanation of results

During the 13 weeks ended October 1, 2016, net demand for Canadian circulation coins was

lower at 1,032.6 million (2015 – 1,153.3 million) coins. Demand during the quarter was met

through three main sources of supply:




(Unaudited)


Surplus coin inventories held by major financial institutions across Canada: During the

quarter, these inventories declined to 777.5 million (2015 – 815.7 million) coins.

More coins are being retained by consumers due to a decline in the number of

automated coin recycling kiosks across Canada.

Recycled coins: The volume of coins recycled declined to 64.5 million (2015 – 217.4

million) pieces during the third quarter of 2016. One of the major financial institutions

participating in the recycling program discontinued its recycling program in mid-May and

the kiosks that had been placed throughout its branch network have not been relocated.

The service provider is seeking alternate locations for the machines.

New coins sold to major financial institutions: During the quarter, 203.9 million (2015 –

186.5 million) coins were sold to financial institutions due to the reduced ability to meet

demand with surplus inventories at financial institutions and recycling.

The efficient management of the coinage system that prevents the occurrence of any coin

shortages was achieved within inventory limits outlined in the 2016-2020 Corporate Plan. To

replenish inventories held on behalf of the Department of Finance, the Mint produced 182.6

million (2015 – 58.2 million) coins during the quarter.

During the 39 weeks ended October 1, 2016, net demand for Canadian circulation coins was

lower at 2,987.3 million (2015 – 3,161.4 million) coins.

Circulation Products and Solutions

Circulation Products and Solutions (CP&S) produces and supplies finished coins, coin blanks

and tokens to customers around the world, including central banks, mints, monetary authorities

and finance ministries. These contracts leverage the infrastructure and expertise in our

Winnipeg manufacturing facility. Domestically, CP&S is responsible for the alloy recovery

program (ARP) under which older-composition Canadian coins are removed from circulation

and replaced by multi-ply plated steel (MPPS) coins, which are more durable and secure.


Revenue in the CP&S business increased 61% to $29.2 million during the 13 weeks ended

October 1, 2016 compared to $18.1 million in the same period of fiscal year 2015. Revenue

from foreign circulation sales increased 121% to $26.3 million from $11.8 million in the third

quarter of 2015. Revenue from ARP declined 54% to $2.9 million from $6.3 million in the same

period in 2015.

Foreign circulation revenue reflects the shipment of 517.7 million (2015 - 336.6 million) coins

and blanks to six (2015 – 12) countries during the quarter. The increase reflects higher demand




(Unaudited)


for the Mint’s multi-ply products. During the third quarter of 2016, the Mint secured four

contracts to produce 0.2 billion coins and blanks.

ARP revenue declined due to the decrease in recycling volumes, reduced numbers of alloy

coins in the volumes that are recycled and the continued impact of lower nickel and copper

prices compared to the same period last year.

In the 39 weeks ended October 1, 2016, the Mint produced and shipped 925.8 million (2015 –

900.1 million) coins and blanks to 11 (2015 – 16) countries. Revenue increased 11% to $50.9

million in the year to date compared to $46.0 million in the same period last year. During the 39-

week period, the Mint secured 11 (2015 – 11) contracts to produce circulation and numismatic

coins for 11 (2015 – 9) countries. Revenue from ARP declined 49% to $8.2 million from $16.0

million in the same period in fiscal year 2015. Reduced yields, fewer available coins to process,

and lower metal prices accounted for the decline in revenue.

Bullion Products and Services

The Bullion Products and Services business provides customers with market-leading precious

metal investment coin and bar products supported by integrated precious metal refining and

storage solutions. The Canadian Gold and Silver Reserves ETR products listed on the Toronto

Stock Exchange allow retail and institutional investors to access precious metals stored at the

Mint and reduce the Mint’s precious metal leasing costs.

Beginning in Q3 2016, the Mint presents Bullion sale transactions involving customer inventory

on deposit with the Mint (“Customer inventory deals”) on a net basis. The impact of this

presentation is shown in the tables below:

(CAD$ millions )

October 1,

2016

September 26,

2015

October 1,

2016

September 26,

2015

Gross revenue $ 584 $ 840 $ 1,975 $ 1,886

Less: Customer inventory deals (119) (156) (454) (424)

Net revenue $ 465 $ 684 $ 1,521 $ 1,462


(ounces thousands )

October 1,

2016

September 26,

2015

October 1,

2016

September 26,

2015

Gross ounces 6,139 9,529 25,832 25,236

Less: ounces from Customer inventory deals (1,160) (2,564) (5,844) (6,757)

Net ounces 4,979 6,965 19,988 18,479





(Unaudited)



Bullion revenues for the 13 weeks ended October 1, 2016 decreased 32% to $465.4 million

from $684.1 million in the same period in 2015. Sales of gold coins, mostly Gold Maple Leaf

(GML) coins, declined 40% to 201.0 thousand (2015 – 336.5 thousand) ounces. Sales of silver

coins, mostly Silver Maple Leaf (SML) coins, declined 36% to 6.1 million (2015 – 9.5 million)

ounces. The recent decline in revenues and profits is attributed to less demand in Q3 compared

to prior year’s near-record level.

During the 39 weeks ended October 1, 2016, Bullion Products and Services revenue increased

4% to $1,521.1 million from $1,461.8 million in the same period in 2015. Sales of gold coins,

held steady to 682.2 thousand (2015 – 679.4 thousand) ounces while sales of silver coins,

increased 2% to 25.8 million (2015 – 25.2 million) ounces. Bullion results in 2016 remained

strong as a result of the high demand during the first half of the year in North America for bullion

core and custom products.

Numismatics

The Numismatics business creates and sells collectible coins and medals to customers in

Canada and around the world. Due to world-class designs, the Mint’s global leadership in the art

and science of minting is consistently recognized with prestigious international awards. Mint.ca

continues to rank among the top destinations for online numismatic coin purchases.


Numismatics revenue declined 7% to $36.3 million during the 13 weeks ended October 1, 2016

compared to $38.9 million in the third quarter of 2015. During the quarter, the Mint issued 55

(2015 – 62) new products and achieved 21 (2015 – 22) sellouts.

Consumer demand and productivity of sales and marketing activities for the Mint’s gold and

silver numismatic coins have a significant impact on the Mint’s performance. During the third

quarter of 2016, sales of numismatic gold products increased 30% to $9.6 million compared to

$7.4 million in the same period in 2015. Sales of numismatic silver products declined 13% to

$25.9 million compared to $29.9 million in 2015.

For the 39 weeks ended October 1, 2016, revenue for the business was $111.0 million

compared to $109.7 million in the same period in 2015. The number of numismatic products

issued year to date was 168 (2015 – 193) in 2016 as part of a strategic decision to focus the

portfolio. The Mint achieved 61 (2015 – 54) sell-outs to date. Sales of numismatic gold products

increased 25% to $30.7 million compared to $24.5 million in the same period in 2015. Sales of

numismatic silver products declined 6% to $72.9 million compared to $77.3 million in 2015.

The Mint is dedicating the necessary resources to further develop our marketing strategy by

focusing on a customer-centric marketing, sales and operational plan to support future growth




(Unaudited)


such as the Canada 150 initiative. This marketing strategy will also involve integrating product,

price, promotion and placement strategies leveraging web, digital, social media and call centre

capabilities.

LIQUIDITY AND CAPITAL RESOURCES

The Mint’s cash balance declined to $93.3 million at October 1, 2016 from $140.8 million at

December 31, 2015. The decline was mainly due to a dividend payment of $31.0 million to the

Government of Canada, capital expenditures of $8.8 million and various net operating activities

of $7.2 million. Inventories increased to $86.8 million from $79.1 million at December 31, 2015.

The increase is due to the purchase of precious metals and the build-up of finished goods.

Consolidated total assets declined by 10% to $395.6 million at October 1, 2016 compared to

$439.3 million at December 31, 2015.

Capital expenditures during the quarter declined to $3.2 million from $4.7 million during the

same period in 2015. The variance reflects management’s realignment of key capital projects

for 2016.

RISKS TO PERFORMANCE

Management considers risks and opportunities at all levels of decision making and is currently

undergoing an assessment of its Enterprise Risk Management (ERM) program to ensure it is

well designed to meet shareholder requirements. This will lead to continued improvements in

the governance and management of risk for all key stakeholders including the shareholder,

Board of Directors and the leadership team. This process will formalize plans to treat the

organization’s most significant risks, with leadership and accountability at the senior executive

level. The conclusion of this process will result in changes to and further definition of the risks

identified in the Risks to Performance section of the 2015 Annual Report.

As discussed in the Annual Report, the Mint’s performance is influenced by many factors,

including competitive pressures, economic conditions and volatility in financial and commodity

markets. A significant portion of the Mint’s revenues and costs are denominated in foreign

currencies, mainly US dollars, which expose the Mint to foreign exchange risk. The Mint

mitigates this risk through a variety of risk management strategies, including natural currency

and financial instruments hedges for a portion of its US dollar denominated net cash flows.

OUTLOOK

The operating and financial results achieved during the 39 weeks ended October 1, 2016

indicate that the financial goals established in the 2016-2020 Corporate Plan are at risk, driven

by changes in the Numismatics business.

In the CP&S business, global demand for circulation coins and blanks is anticipated to

strengthen over the coming 18 months. The decline in recycling volumes is being closely




(Unaudited)


monitored to assess the impact on the supply of both Canadian circulation coins and ARP

revenues.

As for the Mint’s Numismatics business, fiscal year 2016 has been challenging. The Mint is

developing a plan to ensure the successful future growth of the business that includes a robust

program to celebrate Canada’s 150th anniversary.

Gold and Silver bullion demand rebounded in Q4 after softer demand during the summer.

Demand for silver bullion coins has soften early into Q1 2017, demand for gold coins remains

robust and overall outlook remains positive for fiscal 2017.

FORWARD LOOKING STATEMENTS

The unaudited condensed consolidated quarterly financial statements and the MD&A contain

forward-looking statements that reflect management’s expectations regarding the Mint’s

objectives, plans, strategies, future growth, results of operations, performance, and business

prospects and opportunities. Forward-looking statements are typically identified by words or

phrases such as “plans”, “anticipates”, “expects”, “believes”, “estimates”, “intends”, and other

similar expressions. These forward-looking statements are not facts, but only estimates

regarding expected growth, results of operations, performance, business prospects and

opportunities (assumptions). While management considers these assumptions to be reasonable

based on available information, they may prove to be incorrect. These estimates of future

results are subject to a number of risks, uncertainties and other factors that could cause actual

results to differ materially from what the Mint expects. These risks, uncertainties and other

factors include, but are not limited to, those risks and uncertainties set forth above in the Risks

to Performance as well as in note 10 – Financial Instruments and Financial Risk Management to

our financial statements.

To the extent the Mint provide future-oriented financial information or a financial outlook, such

as future growth and financial performance, the Mint is providing this information for the purpose

of describing its future expectations. Therefore, readers are cautioned that this information may

not be appropriate for any other purpose. Furthermore, future-oriented financial information and

financial outlooks, as with forward-looking information generally, are based on the assumptions

and subject to the risks.

Readers are urged to consider these factors carefully when evaluating these forward-looking

statements. In light of these assumptions and risks, the events predicted in these forward-

looking statements may not occur. The Mint cannot assure that projected results or events will

be achieved. Accordingly, readers are cautioned not to place undue reliance on the forward-

looking statements.




(Unaudited)


The forward-looking statements included in the unaudited condensed consolidated quarterly

financial statements and MD&A are made only as of February 22, 2017, and the Mint does not

undertake to publicly update these statements to reflect new information, future events or

changes in circumstances or for any other reason after this date.




(Unaudited)


Statement of Management Responsibility by Senior Officials

Management is responsible for the preparation and fair presentation of these condensed

consolidated quarterly financial statements in accordance with IAS 34 Interim Financial

Reporting and requirements in the Treasury Board of Canada Standard on Quarterly Financial

Reports for Crown Corporations and for such internal controls as management determines is

necessary to enable the preparation of condensed consolidated quarterly financial statements

that are free from material misstatement. Management is also responsible for ensuring all other

information in this quarterly financial report is consistent, where appropriate, with the condensed

consolidated quarterly financial statements.

To the best of our knowledge, these unaudited condensed consolidated quarterly financial

statements present fairly, in all material respects, the financial position, results of operations and

cash flows of the corporation, as at the date of and for the periods presented in the condensed

consolidated quarterly financial statements.

Sandra L. Hanington Jennifer Camelon, CPA, CA

President and Chief Executive Officer Chief Financial Officer and

Vice-President, Finance and Administration

Ottawa, Canada

February 22, 2017


ROYAL CANADIAN MINT

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Unaudited

(CAD$ thousands)

Notes

October 1, 2016 December 31, 2015

restated (note 3)

Current Assets

Cash 6 $ 93,328 $ 140,776

Accounts receivable 7 18,094 22,946

Prepaid expenses 8 6,468 4,821

Income taxes receivable 7,459 2,891

Inventories 9 86,769 79,055

Derivative financial assets 10 1,647 756

Total current assets 213,765 251,245

Non-current assets

Derivative financial assets 10 196 -

Property, plant and equipment 11 168,577 172,597

Investment property 236 236

Intangible assets 11 12,827 15,211

Total non-current assets 181,836 188,044

Total assets $ 395,601 $ 439,289

Current Liabilities

Accounts payable and accrued liabilities 13 $ 48,868 $ 84,516

Loans payable 7,574 7,526

Provision for Face Value redemptions and returns 12 3,323 3,583

Deferred revenue 14 11,439 8,656

Income taxes payable - 4,828

Employee benefits 15 2,942 2,697

Derivative financial liabilities 10 5,177 11,414

Total current liabilities 79,323 123,220

Non-current liabilities

Derivative financial liabilities 10 627 4,096

Loans payable 26,987 26,987

Provision for Face Value redemptions and returns 12 124,796 119,426

Deferred tax liabilities 1,320 564

Employee benefits 10,439 10,439

Total non-current liabilities 164,169 161,512

Total liabilities 243,492 284,732

Shareholder’s equity

Share capital (authorised and issued 4,000 non-

transferable shares) 40,000 40,000

Retained earnings 115,449 121,386

Accumulated other comprehensive loss (3,340) (6,829)

Total shareholder’s equity 152,109 154,557

Total liabilities and shareholder’s equity $ 395,601 $ 439,289

Commitments, contingencies and guarantees (note 21)

The accompanying notes are an integral part of these condensed consolidated financial statements.

As at


ROYAL CANADIAN MINT

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Unaudited

(CAD$ thousands)

Notes October 1,

2016

September 26,

2015 restated

(note 3)

October 1,

2016

September 26,

2015 restated

(note 3)

Revenue 16 $ 553,803 $ 762,087 $ 1,751,958 $ 1,686,452

Cost of sales 17, 18 518,230 717,819 1,620,334 1,558,133

Gross profit 35,573 44,268 131,624 128,319

Operating expenses

Marketing and sales expenses 17, 18 16,919 18,766 56,716 59,314

Administration expenses 17, 18 14,515 15,706 44,136 44,546

Impairment losses - 65,512 - 65,512

Operating expenses 31,434 99,984 100,852 169,372

Net foreign exchange gains 313 937 2,486 2,856

Operating profit (loss) 4,452 (54,779) 33,258 (38,197)

Finance costs, net (278) (77) (370) (349)

Other Income 1 - 221 -

Profit (loss) before income tax 4,175 (54,856) 33,109 (38,546)

Income tax expense (recovery) 1,731 (11,246) 8,047 (2,782)

Profit (loss) for the period 2,444 (43,610) 25,062 (35,764)

Other comprehensive income (loss)

Items that will be reclassified subsequently to profit or loss:

Net unrealized (losses) gains on cash

flow hedges (302) (2,103) 2,974 (3,515)

Reclassification of net realized losses

on cash flow hedges transferred from

other comprehensive income 632 729 515 1,614

Other comprehensive income (loss), net of tax 330 (1,374) 3,489 (1,901)

Total comprehensive income (loss) $ 2,774 $ (44,984) $ 28,551 $ (37,665)




ROYAL CANADIAN MINT

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Unaudited

13 weeks ended October 1, 2016 (CAD$ thousands)

Share

Capital

Retained

earnings -

restated

(note 3)

Accumulated other

comprehensive (loss) (Net

gains(losses) on cash flow

hedges) Total

Balance as at July 2, 2016 $ 40,000 $ 113,005 $ (3,670) $ 149,335

Profit for the period - 2,444 - 2,444

Other comprehensive income, net of tax - - 330 330

Balance as at October 1, 2016 $ 40,000 $ 115,449 $ (3,340) $ 152,109

13 weeks ended September 26, 2015 (CAD$ thousands)

Share Capital

Retained

earnings -

restated

(note 3)

Accumulated other



hedges) Total

Balance as at June 27, 2015 $ 40,000 $ 209,886 $ (2,131) $ 247,755

Loss for the period - (43,610) - (43,610)

Other comprehensive loss, net of tax - - (1,374) (1,374)

Balance as at September 26, 2015 restated (note 3) $ 40,000 $ 166,276 $ (3,505) 202,771

39 weeks ended October 1, 2016 (CAD$ thousands)

Share

Capital

Retained

earnings -

restated

(note 3)

Accumulated other



hedges) Total

Balance as at December 31, 2015 $ 40,000 $ 121,387 $ (6,829) $ 154,558

Profit for the period - 25,062 - 25,062

Other comprehensive income, net of tax - - 3,489 3,489

Dividends paid - (31,000) - (31,000)

Balance as at October 1, 2016 $ 40,000 $ 115,449 $ (3,340) $ 152,109

39 weeks ended September 26, 2015 (CAD$ thousands)

Share Capital

Retained

earnings -

restated

(note 3)

Accumulated other



hedges) Total

Balance as at December 31, 2014 $ 40,000 $ 212,040 $ (1,604) $ 250,436

Loss for the period - (35,764) - (35,764)

Other comprehensive loss, net of tax - - (1,901) (1,901)

Dividends paid - (10,000) - (10,000)

Balance as at September 26, 2015 restated (note 3) $ 40,000 $ 166,276 $ (3,505) 202,771



ROYAL CANADIAN MINT

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

Unaudited

(CAD$ thousands)

October 1,

2016

September 26,

2015

October 1,

2016

September 26,

2015

Cash flows from operating activities

Receipts from customers $ 438,270 $ 642,707 $ 1,354,934 $ 1,318,144

Cash receipts on disposal of MintChip - - 220 -

Payments to suppliers and employees (433,452) (611,361) (1,392,124) (1,286,915)

Interest paid (348) (164) (925) (693)

Cash receipts on derivative contracts 167,020 150,880 653,845 392,079

Cash payments on derivative contracts (156,914) (147,381) (605,034) (343,305)

Income taxes paid (3,963) 3,304 (18,140) (3,243)

Net cash generated (used) by operating activities 10,613 37,985 (7,224) 76,067

Cash flows from investing activities

Interest received 142 159 696 733

Cash receipts on derivative contracts to acquire

property, plant and equipment and intangible assets

584 - 3,491 -

Cash payments on derivative contracts to acquire

property, plant and equipment and intangible assets

(878) (1,420) (4,096) (1,420)

Payments to acquire property, plant and equipment

and intangible assets

(3,226) (4,653) (8,833) (16,199)

Net cash used in investing activities (3,378) (5,914) (8,742) (16,886)

Cash flows from financing activities

Dividend paid - - (31,000) (10,000)

Net cash used in financing activities - - (31,000) (10,000)

Net increase (decrease) in cash 7,235 32,071 (46,966) 49,181

Cash at the beginning of the period 85,947 121,780 140,776 104,153

Effects of exchange rate changes on cash held in

foreign currencies

146 735 (482) 1,252

Cash at the end of the period $ 93,328 $ 154,586 $ 93,328 $ 154,586




N OT ES T O T H E C O ND EN S ED C O N SO L I DAT ED F I N AN C I AL ST AT EM ENT S

3 9 W EEKS EN D ED OCT O BER 1 , 2 0 1 6

(Unaudited) (In thousands of Canadian dollars, unless otherwise indicated)


1. NATURE AND DESCRIPTION OF THE CORPORATION

The Royal Canadian Mint (the “Mint” or the “Corporation”) was incorporated in 1969 by the Royal

Canadian Mint Act to mint coins and carry out other related activities. The Mint is an agent

corporation of Her Majesty named in Part II of Schedule III to the Financial Administration Act. It

produces all of the circulation coins used in Canada and manages the support distribution system

for the Government of Canada.

In December, 2014, the Royal Canadian Mint Act was amended to specify that although the object

of the Mint is to operate in the expectation of profit, it shall no longer anticipate profit with respect

to the provision of any goods or services to Her Majesty in right of Canada, including the minting of

circulation coins.

In July 2015, the Corporation was issued a directive (P.C. 2015-1107) pursuant to section 89 of the

Financial Administration Act to align its travel, hospitality, conference and event expenditure

policies, guidelines and practices with Treasury Board policies, directives and related instruments

on travel, hospitality, conference and event expenditures in a manner that is consistent with its

legal obligations, and to report on the implementation of this directive in the Corporation’s next

corporate plan. The Corporation has fulfilled this directive and implemented a new integrated

Corporate Travel, Hospitality, Conference and Event policy effective February 29, 2016.

The Mint is one of the world’s foremost producers of circulation, collector and bullion investment

coins for the domestic and international marketplace. It is also one of the largest gold refiners in

the world. The addresses of its registered office and principal place of business are 320 Sussex

Drive, Ottawa, Ontario, Canada, K1A 0G8 and 520 Lagimodière Blvd, Winnipeg, Manitoba,

Canada, R2J 3E7.

In 2002, the Mint incorporated RCMH-MRCF Inc., a wholly-owned subsidiary. RCMH-MRCF Inc.

has been operationally inactive since December 31, 2008.

The Corporation is a prescribed federal Crown corporation for tax purposes and is subject to

federal income taxes under the Income Tax Act.

2. BASIS OF PRESENTATION

2.1 Statement of Compliance

These interim condensed consolidated financial statements have been prepared in accordance

with IAS 34 Interim Financial Reporting (“IAS 34”) of the International Financial Reporting

Standards (“IFRS”) and the Standard on Quarterly Financial Reports for Crown Corporations

issued by the Treasury Board of Canada. As permitted under this standard, these interim

condensed consolidated financial statements do not include all of the disclosure requirements for

annual consolidated financial statements, and should be read in conjunction with the Corporation’s

audited consolidated financial statements for its fiscal year ended December 31, 2015.






These interim condensed consolidated financial statements have not been audited or reviewed by

an external auditor.

These interim condensed consolidated financial statements have been approved for public release

by the Board of Directors of the Corporation on February 22, 2017.

2.2 Basis of presentation

The interim condensed consolidated financial statements were prepared in accordance with IFRS.

Although the Corporation’s year end of December 31 matches the calendar year end, the

Corporation’s quarter end dates do not necessarily coincide with calendar year quarters; instead,

each of the Corporation’s quarters contains 13 weeks.

2.3 Consolidation

The interim condensed consolidated financial statements incorporate the interim financial

statements of the Corporation and its wholly-owned subsidiary. The subsidiary’s accounting

policies are in line with those used by the Corporation. All intercompany transactions, balances,

income and expenses are eliminated in full on consolidation.

2.4 Functional and presentation currency

Unless otherwise stated, all figures reported in the interim condensed consolidated financial

statements and disclosures are reflected in thousands of Canadian dollars (CAD$), which is the

functional currency of the Corporation.

2.5 Significant accounting policies

Significant accounting policies applied in these interim condensed consolidated financial

statements are disclosed in note 2 of the Corporation’s annual consolidated financial statements

for the year ended December 31, 2015, except for the restatement and reclassification of prior

periods described in note 3. The accounting policies have been applied consistently in the current

and comparative periods.

3. Restatement and Reclassification of prior periods

3.1 Restatement of prior periods

In the course of the preparation of the interim condensed consolidated financial statements for the

quarter ended October 1, 2016, the Mint identified an adjustment relating to prior periods requiring

restatement, relating to the sale of numismatic Face Value products.

In the past, sales of numismatic Face Value products were recorded as revenue, along with a

provision for expected redemptions and returns which was based on historical redemption and

return patterns for other numismatic products. In 2016, the Mint conducted an extensive review of

the Face Value program and redemptions and returns to date. Face Value products have different

characteristics than other numismatic products as they have a Face Value equal to their purchase

price which, combined with the unlimited redemption and return period permitted by the Mint’s

current redemption and return policies and practices, make Face Value products significantly more






likely to be redeemed or returned than other numismatic products. Consequently, the historical

redemption and return patterns for other numismatic products cannot be used to estimate the

redemptions and returns for Face Value products and no reasonable, reliable alternative method

exists. As a result of this review, it was determined that revenue should not be recognized until a

reasonable estimate of redemptions and returns can be made.

The Mint believes the primary factors influencing its ability to develop a reliable estimate of

redemptions and returns to be the market price of silver and the term over which redemptions and

returns may be accepted. At October 1, 2016, the market price of silver was significantly less than

the Face Value of these coins, and it is currently not the intention of the Mint to place an expiry

date on the current redemption and return policies. As a result, a provision representing the

cumulative value of unredeemed/unreturned Face Value products and the costs of redemptions

and returns, net of the value of the corresponding silver content, was recorded in Q3 2016 with

retrospective adjustment to the inception of the Face Value program. This net provision will

increase each period with new sales and decrease or increase each period as the market price of

silver (in U.S. dollars) increases or decreases and the Canadian dollar weakens or strengthens

with respect to the U.S. dollar. These movements in the net provision will impact profit (loss) each

period.

As a result of this change in accounting, the consolidated balance sheet at December 31, 2015,

and the consolidated statements of operations and changes in equity and comprehensive income

for the year ended December 31, 2015 and the 13 week and 39 week periods ended September

26, 2015 were restated.

This restatement had no effect on the operating, financing or investment activities as reported in

the respective consolidated statements of cash flows.

The effect of the restatement is as follows:

Consolidated statements of financial position

Restatement of 2015 opening statement of financial position as at January 1, 2015

Increase (decrease)

As previously


Inventory $ 89,023 $ (1,003) $ 88,020

Provision for Face Value redemptions and returns - 83,297 83,297

Accounts payable and accrued liabilities 74,778 (919) 73,859

Retained earnings 295,421 (83,381) 212,040

As at January 1,2015






Restatement of 2015 ending statement of financial position as at December 31, 2015

Increase (decrease)

As previously


Inventory $ 78,570 $ 485 $ 79,055

Provision for Face Value redemptions and returns - 123,009 123,009

Accounts payable and accrued liabilities 85,771 (1,255) 84,516

Retained earnings 242,655 (121,269) 121,386

As at December 31,2015

Consolidated statements of comprehensive income

Restatement of interim periods for Q1 and Q2 2015 and 2016

Increase (decrease)

As reported in

Q1 2015 Restatements As restated

As reported in


Revenue $ 640,126 $ (12,269) $ 627,857 $ 780,921 $ (1,835) $ 779,086

Cost of sales 590,643 (3,518) 587,125 738,468 (5,843) 732,625

Net foreign exchange gains 30 1,954 1,984 2,843 (2,259) 584

Profit for the period 11,666 (6,797) 4,869 9,912 1,749 11,661

Increase (decrease)

As reported in


As reported in


Revenue $ 572,432 $ (8,391) $ 564,041 $ 761,978 $ (7,318) $ 754,660

Cost of sales 520,288 562 520,850 714,384 (9,314) 705,070

Net foreign exchange gains

(losses) 594 (659) (65) 1,665 (76) 1,589


Increase (decrease)

As reported in


As reported in


Revenue $ 1,212,561 $ (20,659) $ 1,191,902 $ 1,542,900 $ (9,152) $ 1,533,748

Cost of sales 1,110,932 (2,955) 1,107,977 1,452,852 (15,156) 1,437,696

Net foreign exchange gains 624 1,295 1,919 4,508 (2,335) 2,173


13 weeks ended June 27, 2015 13 weeks ended July 2, 2016


13 weeks ended March 28, 2015 13 weeks ended April 2, 2016






Restatement of comparative Q3 and year end 2015 periods

Increase (decrease)

As reported in


As reported in


Revenue $ 930,982 $ (12,560) $ 918,422 $ 2,143,668 $ (33,221) $ 2,110,447

Cost of sales 875,421 (691) 874,730 1,987,063 (3,648) 1,983,415


(losses) (1,348) 2,285 937 (724) 3,580 2,856

Profit for the period (34,026) (9,584) (43,610) (9,771) (25,993) (35,764)

13 weeks ended September 26, 2015 39 weeks ended September 26, 2015

Increase (decrease)

As previously


Revenue $ 2,974,148 $ (45,681) $ 2,928,467

Cost of sales 2,770,210 (2,884) 2,767,326


(losses) (757) 4,910 4,153

Profit for the period (318) (37,887) (38,205)

Year ended December 31, 2015

3.2 Reclassification of prior periods

Historically, all of the revenue associated with bullion product sales was recorded on a gross basis;

however there are several different sales streams for bullion products. In Q3 2016, the Mint

initiated a review of the different bullion sales transaction types during which it was determined that

it was more appropriate to recognize revenue from bullion sales on a net basis when the

transaction involves inventory that a customer has on deposit with the Mint to create a product for

them of a different format, for instance, a Gold Maple Leaf. As a result, the revenue and cost of

precious metals from Bullion sale transactions involving customer inventory on deposit with the

Mint (“Customer inventory deals”) are now recorded on a net basis, with only the commission and

incremental value-added manufacturing services recognized as revenue. This change in

presentation has no impact on profit (loss).

The consolidated statement of operations for the year ended December 31, 2015, for its interim

periods and for the 2016 interim periods have been adjusted to reflect this change in the

presentation of revenue and cost of sales.






The effect of the reclassification is as follows:

Consolidated statements of comprehensive income

Reclassification of interim periods for Q1 and Q2 2015 and 2016

Increase (decrease)

As restated in

Q3 2016 Reclassification

As restated and

reclassified

As restated in


As restated and

reclassified

Revenue $ 627,857 $ (156,293) $ 471,564 $ 779,086 $ (191,009) $ 588,077

Cost of sales 587,125 (156,293) 430,832 732,625 (191,009) 541,616

Net foreign exchange gains 1,984 - 1,984 584 - 584

Profit for the period 4,869 - 4,869 11,661 - 11,661

Increase (decrease)

As restated in


As restated and

reclassified

As restated in


As restated and

reclassified

Revenue $ 564,041 $ (111,367) $ 452,674 $ 754,660 $ (144,583) $ 610,077

Cost of sales 520,850 (111,367) 409,483 705,070 (144,583) 560,487


(losses) (65) - (65) 1,589 - 1,589


Increase (decrease)

As restated in


As restated and

reclassified

As restated in


As restated and

reclassified

Revenue $ 1,191,902 $ (267,660) $ 924,242 $ 1,533,748 $ (335,593) $ 1,198,155

Cost of sales 1,107,977 (267,660) 840,317 1,437,696 (335,593) 1,102,103

Net foreign exchange gains 1,919 - 1,919 2,173 - 2,173


13 weeks ended March 28, 2015 13 weeks ended April 2, 2016



Reclassification of comparative Q3 and year end 2015 periods

Increase (decrease)

As restated in


As restated and

reclassified

As restated in


As restated and

reclassified

Revenue $ 918,422 $ (156,335) $ 762,087 $ 2,110,447 $ (423,995) $ 1,686,452

Cost of sales 874,730 (156,335) 718,395 1,983,415 (423,995) 1,559,420

Net foreign exchange gains 937 - 937 2,856 - 2,856

Profit for the period (43,610) - (43,610) (35,764) - (35,764)



Increase (decrease)

As restated in


As restated and

reclassified

Revenue $ 2,928,467 $ (625,691) $ 2,302,776

Cost of sales 2,767,326 (625,691) 2,141,635

Net foreign exchange gains 4,153 - 4,153

Profit for the period (38,205) - (38,205)

Year ended December 31, 2015 (1)

(1)

Includes Numismatic restatement as per note 3 and excludes other reclassification adjustment as per note 22 of these

condensed consolidated financial statements






4. KEY SOURCES OF ESTIMATION UNCERTAINTY AND CRITICAL JUDGEMENTS

The preparation of these interim condensed consolidated financial statements requires

management to make critical judgements, estimates and assumptions that affect the reported

amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported

amounts of revenue and expenses during the reporting period.

In making critical judgements, estimates and using assumptions, management relies on external

information and observable conditions where possible, supplemented by internal analysis as

required. The judgements, estimates and associated assumptions are based on historical

experience and other factors that are considered to be relevant. Actual results may differ

significantly from the estimates and assumptions. The estimates and underlying assumptions are

reviewed on an ongoing basis.

As noted in the Corporation’s audited consolidated financial statements for its fiscal year ended

December 31, 2015, revenue is presented net of customer returns, rebates and other similar

allowances. As a result, management is required to make judgements with respect to the expected

return rate and the net realizable value of those returned items. Details of the provision for

estimated sales returns and allowances are included in notes 12 and 13.

5. APPLICATION OF NEW AND REVISED IFRS

5.1 New and revised IFRS affecting amounts reported and/or disclosed in the consolidated

financial statements

There were no new or revised IFRS issued by the International Accounting Standards Board

(IASB) that became effective during the 39 weeks ended October 1, 2016 that affected amounts

reported or disclosed in the interim condensed consolidated financial statements.

5.2 New and revised IFRS pronouncements issued but not yet effective

The following amendments have been assessed as having a possible impact on the Corporation’s consolidated financial statements in the future. The Corporation is currently assessing these amendments and therefore the extent of the impact of the adoption of the amendments is unknown. The Corporation has no plans to early adopt any of these IFRS amendments. IAS 12 Income Taxes

An amendment was released in January 2016 to IAS 12 regarding the recognition of deferred tax assets for unrealised losses. The amendment is effective for annual periods beginning on or after January 1, 2017.

IAS 7 Statement of Cash Flows An amendment was released in January 2016 to IAS 7 Statement of Cash Flows which clarified that entities shall provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities. The amendment is effective for annual periods beginning on or after January 1, 2017.






IFRS 9 Financial Instruments (“IFRS 9”) In July 2014, the IASB issued the final version of IFRS 9, which incorporates the classification and measurement, impairment and hedge accounting phases of the project to replace the existing standards under IAS39 “Financial Instruments: Recognition and Measurement”. The new IFRS 9 standard is effective for annual periods beginning on or after January 1, 2018 and is to be applied retroactively. Early adoption is permitted.

IFRS 7 Financial Instruments: Disclosures (“IFRS 7”) An amendment was released in December 2011 to IFRS 7 regarding requiring disclosures about the initial application of IFRS 9 which has an effective date of January 1, 2018. The amendments are to be applied retrospectively.

An additional amendment was released in November 2013 to IFRS 7 regarding additional hedge accounting disclosures resulting from the introduction of the hedge accounting section of IFRS 9 which has an effective date of January 1, 2018. The amendments are to be applied retrospectively.

IFRS 15 Revenue from Contracts with Customers (“IFRS 15”)

IFRS 15 was issued in May 2014 and specifies how and when an IFRS reporter will recognise

revenue as well as requiring such entities to provide users of financial statements with more

informative, relevant disclosures. The standard supersedes IAS 18 “Revenue’', IAS 11

“Construction Contracts” and a number of revenue-related interpretations. Application of the

standard is mandatory for all IFRS reporters and it applies to nearly all contracts with customers:

the main exceptions are leases, financial instruments and insurance contracts. In July 2015, the

IASB deferred the effective date of IFRS 15 to January 1, 2018. Early adoption is permitted.

IFRS 16 Leases IFRS 16 Leases was issued on January 13, 2016 to replace IAS 17 Leases. The new standard

requires that leases be brought onto companies’ balance sheets, increasing the visibility of their

assets and liabilities. IFRS 16 removes the classification of leases as either operating leases or

finance leases (for the lessee-the lease customer), treating all leases as finance leases. Short-term

leases (less than 12 months) and leases of low-value assets (such as personal computers) will

have an optional exemption from the requirements. The new standard is effective January 1, 2019.

Early adoption is permitted (as long as the recently issued revenue Standard, IFRS 15 Revenue

from Contracts with Customers is also adopted).






6. CASH


Canadian dollars $ 83,594 $ 128,676

US dollars 9,135 11,146

Euros 599 954

Total cash $ 93,328 $ 140,776

As at

7. ACCOUNTS RECEIVABLE


Trade receivables and accruals $ 16,597 $ 20,632

Allowance for doubtful accounts (13) (81)

Net trade receivables 16,584 20,551

Other receivables 1,510 2,395

Total accounts receivable $ 18,094 $ 22,946

As at

The Corporation does not hold any collateral in respect of trade and other receivables.

8. PREPAID EXPENSES


Total prepaid expenses $ 6,468 $ 4,821

As at

Included in prepaid expenses are $4.0 million related to a five-year services and supply

agreement. The Agreement also requires additional pre-payments of $2.4 million and $1.6 million

on December 31, 2017 and December 31, 2018 respectively. These amounts will be amortized

over the term of the agreement.






9. INVENTORIES

October 1, 2016

December 31, 2015

restated (note 3)

Raw materials and supplies $ 21,248 $ 10,976

Work in process 21,433 20,287

Finished goods 44,088 47,792

Total inventories $ 86,769 $ 79,055

As at

The Corporation recognized for the 39 weeks ended October 1, 2016 $5.8 million of write-downs of

inventory to net realisable value (39 weeks ended September 26, 2015 - $2.8 million).

10. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT

10.1 Classification and fair value measurements of financial instruments

10.1.1 Classification and fair value techniques of financial instruments

The Corporation holds financial instruments in the form of cash, accounts receivable, derivative

assets, accounts payable and accrued liabilities, loans payable and derivative liabilities.

The Corporation has estimated the fair values of its financial instruments as follows:

i) The carrying amounts of cash, accounts receivable and accounts payable and

accrued liabilities approximate their fair values as a result of the relatively short-term

nature of these financial instruments.

ii) The fair values of loans payables are estimated based on a discounted cash flow

approach using current market rates appropriate as at the respective date

presented.

iii) The fair values of the Corporation's foreign currency forward contracts and interest

rate swaps are based on estimated credit-adjusted forward market prices. The

Corporation takes counterparty risk and its own risk into consideration for the fair

value of financial instruments.

The table below details the types of derivative financial instruments carried at fair value:


Derivative financial assets

Foreign currency forwards $ 1,843 $ 756

$ 1,843 $ 756

Derivative financial liabilities

Foreign currency forwards $ 5,131 $ 14,826

Interest rate swaps 673 684

$ 5,804 $ 15,510

As at






10.1.2 Fair value hierarchy

Financial instruments, other than those that are not subsequently measured at fair value and for

which fair value approximates carrying value, whether or not they are carried at fair value in the

consolidated statement of financial position, must disclose their fair value and be classified using a

fair value hierarchy that reflects the significance of the inputs used in making the measurements:

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities

Level 2: inputs other than quoted prices included within Level 1 that are observable for the

asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices)

Level 3: inputs for the asset or liability that are not based on observable market data

(unobservable inputs).

The fair value measurement of cash is classified as Level 1 of the fair value hierarchy as at

October 1, 2016 and December 31, 2015. The fair value measurements of all other financial

instruments held by the Corporation are classified as Level 2 of the fair value hierarchy as at

October 1, 2016 and December 31, 2015. There were no transfers of financial instruments

between levels for the 39 weeks ended October 1, 2016.

10.2 Financial risk management objectives and framework

The Corporation is exposed to credit risk, liquidity risk and market risk from its use of financial

instruments.

The Board of Directors has overall responsibility for the establishment and oversight of the

Corporation’s risk management framework. The Audit Committee assists the Board of Directors

and is responsible for review, approval and monitoring the Corporation’s risk management policies

including the development of an Enterprise Risk Management program which involves establishing

corporate risk tolerance, identifying and measuring the impact of various risks, and developing risk

management action plans to mitigate risks that exceed corporate risk tolerance. The Audit

Committee reports regularly to the Board of Directors on its activities.

10.2.1 Credit risk management

Credit risk is the risk of financial loss to the Corporation if a customer or counterparty to a financial

instrument fails to meet its contractual obligations, and arises principally from the Corporation’s

receivables from customers, cash and derivative instruments. The Corporation has adopted a

policy of only dealing with creditworthy counterparties as a means of mitigating the risk of financial

loss from defaults. The Corporation’s exposure and the credit ratings of its counterparties are

continuously monitored.

The carrying amount of financial assets recorded in the interim condensed consolidated financial

statements represents the maximum credit exposure.

10.2.2 Liquidity risk

Liquidity risk is the risk that the Corporation will not be able to meet its financial obligations as they

fall due. The Corporation manages liquidity risk by continuously monitoring actual and forecasted

cash flows to ensure, as far as possible, that it will always have sufficient liquidity to meet its






liabilities when due, under both normal and stressed conditions, without incurring unacceptable

losses or risking damage to the Corporation’s reputation.

10.2.3 Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates

or commodity price changes will affect the Corporation's income or the fair value of its financial

instruments.

The Corporation uses derivative instruments, such as foreign currency forward contracts, interest

rate exchange agreements and commodity swap and forward contracts to manage the

Corporation’s exposure to fluctuations in cash flows resulting from foreign exchange risk, interest

rate risk and commodity price risk. The Corporation buys and sells derivatives in the ordinary

course of business and all such transactions are carried out within the guidelines set out in

established policies. The Corporation’s policy is not to enter into derivative instruments for trading

or speculative purposes.

Foreign exchange risk

The Corporation is exposed to foreign exchange risk on sales and purchase transactions that are

denominated in foreign currencies primarily including US dollars and Euros. The Corporation

manages its exposure to exchange rate fluctuations between the foreign currency and the

Canadian dollar by entering into foreign currency forward contracts and by applying hedge

accounting to certain qualifying contracts to minimize the volatility to profit or loss. The Corporation

also uses such contracts in the process of managing its overall cash requirements.

The impact of foreign exchange risk fluctuation on the consolidated financial statements is not

significant because the Corporation’s un-hedged net foreign exchange exposure is not significant.

Interest rate risk Financial assets and financial liabilities with variable interest rates expose the Corporation to cash flow interest rate risk. There is no interest rate risk related to cash as there are no short-term investments as at the dates presented. The Corporation’s Bankers Acceptance interest rate swap loan instruments expose the Corporation to cash flow interest rate risk. The Corporation has fully hedged the exposure to fluctuations in interest rates related to these instruments by entering into corresponding interest rate swaps, where the Corporation pays a fixed interest rate in exchange for receiving a floating interest rate. The interest rate swaps are designated as hedging instruments under the cash flow hedge accounting model.

Financial assets and financial liabilities that bear interest at fixed rates are subject to fair value

interest rate risk. The Corporation does not account for its fixed rate debt instruments as held for

trading; therefore, a change in interest rates at the reporting date would not affect profit or loss with

respect to these fixed rate instruments. The Corporation’s interest rate swaps expose the

Corporation to fair value interest rate risk.

Commodity price risk

The Corporation purchases precious metals for use in bullion and numismatic coins, as well as base metals and alloys in the production of domestic and foreign circulation coins. Exposure to volatility in metal prices is mitigated by matching the timing of purchase and sales, contractually






transferring price risk to suppliers, hedging strategies and/or natural hedges inherent in business activities. The impact of commodity price risk fluctuation on the consolidated financial statements is not material.

11. CAPITAL ASSETS

11.1 Property, plant and equipment

The composition of the net book value of the Corporation’s property, plant and equipment, is

presented in the following tables:


Cost $ 413,336 $ 407,413

Accumulated depreciation (244,759) (234,816)

Net book value $ 168,577 $ 172,597

Net book value by asset class

Land and land improvements $ 2,920 $ 2,922

Buildings and improvements 91,402 93,302

Equipment 70,099 73,215

Capital projects in process 4,156 3,158

Net book value $ 168,577 $ 172,597

As at






Reconciliation of the opening and closing balances of property, plant and equipment for October 1,

2016:

Land and land

improvements

Buildings and

improvements Equipment

Capital

projects in

process Total

Cost

Balance at December 31, 2014 $ 4,094 $ 150,240 $ 244,968 $ 9,733 $ 409,035

Additions - 3,451 7,899 2,890 14,240

Transfers - 2,003 7,462 (9,465) -

Derecognition - - (11,398) - (11,398)

Disposals - - (4,464) - (4,464)

Balance at December 31, 2015 4,094 155,694 244,467 3,158 407,413

Additions - 1,630 1,661 3,355 6,646

Transfers - 176 2,181 (2,357) -

Disposals - (64) (659) - (723)

Balance at October 1, 2016 $ 4,094 $ 157,436 $ 247,650 $ 4,156 $ 413,336

Accumulated depreciation

Balance at December 31, 2014 $ 955 $ 17,480 $ 148,950 $ - $ 167,385

Depreciation (8) 5,622 11,519 - 17,133

Derecognition - - (11,398) - (11,398)

Disposals - - (3,213) - (3,213)

Impairment 225 39,290 25,394 - 64,909

Balance at December 31, 2015 1,172 62,392 171,252 - 234,816

Depreciation 2 3,676 6,915 - 10,593

Disposals - (34) (616) - (650)

Balance at October 1, 2016 $ 1,174 $ 66,034 $ 177,551 $ - $ 244,759

Net book value at October 1, 2016 $ 2,920 $ 91,402 $ 70,099 $ 4,156 $ 168,577

Property, plant and equipment are carried at cost less accumulated depreciation and accumulated

impairment losses.

No asset is pledged as security for borrowings as at October 1, 2016.






11.2 Intangible assets


Cost $ 30,534 $ 29,589

Accumulated depreciation (17,707) (14,378)

Net book value $ 12,827 $ 15,211

As at

Reconciliation of the opening and closing balances of intangibles for October 1, 2016:

Software

Value-in-

Kind

Capital

projects in

process Total

Cost

Balance at December 31, 2014 $ 40,546 - $ 1,019 $ 41,565

Additions 758 1,362 1,046 3,166

Transfers 584 - (584) -

Derecognition (13,780) (1,362) - (15,142)

Balance at December 31, 2015 28,108 - 1,481 29,589

Additions 717 - 228 945

Transfers 1,403 - (1,403) -

Balance at October 1, 2016 $ 30,228 $ - $ 306 $ 30,534

Accumulated amortization

Balance at December 31, 2014 $ 24,115 - $ - $ 24,115

Amortization 3,440 1,362 - 4,802

Derecognition (13,780) (1,362) - (15,142)

Impairment 603 - - 603

Balance at December 31, 2015 14,378 - - 14,378

Amortization 3,329 - - 3,329

Balance at October 1, 2016 $ 17,707 $ - $ - $ 17,707

Net book value at October 1, 2016 $ 12,521 $ - $ 306 $ 12,827

The Corporation’s intangible assets contain mainly purchased software for internal use or for

providing services to customers.






12. PROVISION FOR FACE VALUE REDEMPTIONS AND RETURNS

October 1, 2016

December 31, 2015

restated (note 3)

Provision for Face Value redemptions and returns $ 175,666 $ 154,616

Precious metal recovery (47,547) (31,607)

Net provision for Face Value redemptions and returns $ 128,119 $ 123,009

Less: Current portion (3,323) (3,583)

Long term net provision for Face Value redemptions

and returns $ 124,796 $ 119,426

As at

October 1, 2016

December 31, 2015

restated (note 3)

Opening balance $ 123,009 $ 83,297

Additions 19,179 42,532

Redemptions and returns (3,048) (2,686)

Revaluation (11,021) (134)

Ending balance $ 128,119 $ 123,009

The provision for Face Value redemptions and returns represents the expected cash outflows if all

Face Value coins are redeemed or returned, including the costs of redemptions and returns offset

by the precious metal content that will be reclaimed by the Corporation when the coins are

redeemed or returned. The precious metal recovery component of the provision is based on the

market value of silver as at each balance sheet date. The current portion of the provision is based

on the redemptions and returns for the last 12 months.

13. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

October 1, 2016

December 31, 2015 -

restated (note 3)

Accounts payable and accrued liabilities $ 48,868 $ 84,516

As at

Included in accrued liabilities at October 1, 2016 was a net $0.5 million (December 31, 2015 - $0.7

million) provision for estimated sales returns and allowances.






14. DEFERRED REVENUE


Customer prepayment $ 11,439 $ 8,656

Total deferred revenue $ 11,439 $ 8,656

As at

Included in deferred revenue are prepayments from foreign countries in the amount of $6.1 million.

15. EMPLOYEE COMPENSATION AND BENEFITS

15.1 Pension benefits

Substantially all of the employees of the Corporation are covered by the Public Service Pension

plan (the “Plan”), a contributory defined benefit plan established through legislation and sponsored

by the Government of Canada. Contributions are required by both the employees and the

Corporation. The President of the Treasury Board of Canada sets the required employer

contributions based on a multiple of the employees’ required contribution. The Corporation made

total contributions of $9.0 million in the 39 weeks ended October 1, 2016 (39 weeks ended

September 26, 2015 - $8.8 million).

15.2 Other post-employment benefits

The Corporation provides severance benefits to its employees and also provides supplementary

retirement benefits including post-retirement benefits and post-retirement insurance benefits to

certain employees. The benefits are accrued as the employees render the services necessary to

earn them. These benefits plans are unfunded and thus have no assets, resulting in a plan deficit

equal to the accrued benefit obligation.

15.3 Other long-term employee benefits

The Corporation’s other long-term benefits include benefits for employees in receipt of long-term

disability benefits, sick leave and special leave benefits and worker’s compensation benefits.

These benefits plans are unfunded and thus have no assets, resulting in a plan deficit equal to the

accrued benefit obligation.

16. REVENUE

October 1,

2016

September 26,

2015 restated

(note 3)

October 1,

2016

September 26,

2015 restated

(note 3)

Revenue from the sale of goods $ 550,824 $ 758,149 $ 1,743,063 $ 1,674,912

Revenue from the rendering of services 2,979 3,938 8,895 11,540

Total Revenue $ 553,803 $ 762,087 $ 1,751,958 $ 1,686,452







Revenue from the sale of goods is presented net of cost of sales in cases where the Corporation is

not the principal in the transaction (“Customer inventory deals”). The following is a reconciliation of

the gross revenue from the sale of goods and the net revenue presented:

October 1,

2016

September 26,

2015 restated

(note 3)

October 1,

2016

September 26,

2015 restated

(note 3)

Gross revenue from the sale of goods $ 669,496 $ 914,484 $ 2,197,327 $ 2,098,907

Less: Customer inventory deals (118,672) (156,335) (454,264) (423,995)

Net revenue from the sale of goods $ 550,824 $ 758,149 $ 1,743,063 $ 1,674,912


17. DEPRECIATION AND AMORTIZATION EXPENSE

October 1,

2016

September 26,

2015

October 1,

2016

September 26,

2015

Depreciation of property, plant and equipment $ 3,326 $ 4,504 $ 10,593 $ 13,453

Amortization of intangible assets 957 1,477 3,329 3,978

Total depreciation and amortization expense $ 4,283 $ 5,981 $ 13,922 $ 17,431


Depreciation and amortization expense were reclassified to operating expense as follows:

October 1,

2016

September 26,

2015

October 1,

2016

September 26,

2015

Cost of sales $ 2,810 $ 3,777 $ 8,159 $ 11,250

Marketing and sales expenses 501 1,534 2,027 3,297

Administration expenses 972 670 3,736 2,884

Total depreciation and amortization expense $ 4,283 $ 5,981 $ 13,922 $ 17,431







18. EMPLOYEE COMPENSATION EXPENSES

October 1,

2016

September 26,

2015

October 1,

2016

September 26,

2015

Included in cost of sales:

Salaries and wages including short term employee

benefits $ 11,366 $ 13,068 $ 37,791 $ 39,441

Pension costs 1,208 1,105 4,167 4,069

Long term employee benefits and Post-employment

benefits other than pensions 471 485 1,024 1,468

Included in marketing and sales expenses:


benefits 4,171 4,887 13,944 14,036

Pension costs 434 428 1,422 1,524


benefits other than pensions 123 115 289 342

Included in cost of administration:


benefits 6,451 8,500 21,676 23,377

Pension costs 850 967 3,194 3,341


benefits other than pensions 382 232 1,149 775

Termination benefits 77 85 459 1,843

Total employee compensation and benefits expense $ 25,533 $ 29,872 $ 85,115 $ 90,216


19. SCIENTIFIC RESEARCH AND EXPERIMENTAL DEVELOPMENT EXPENSES, NET

October 1,

2016

September 26,

2015

October 1,

2016

September 26,

2015

Research and development expenses $ 1,361 $ 1,568 $ 3,789 $ 4,703

Scientific research and development investment tax credit (50) (200) (450) (952)

Research and development expenses, net $ 1,311 $ 1,368 $ 3,339 $ 3,751


The net expenses of research and development are included in the administration expenses in the

consolidated statement of comprehensive income.

20. RELATED PARTY TRANSACTIONS

The Corporation is related in terms of common ownership to all Government of Canada owned

entities. The Corporation enters into transactions with these entities in the normal course of

business, under the same terms and conditions that apply to unrelated parties. In accordance with

disclosure exemption regarding “government related entities”, the Corporation is exempt from

certain disclosure requirements of IAS 24 relating to its transactions and outstanding balances

with:






A government that has control, joint control or significant influence over the reporting entity;

and

Another entity that is a related party because the same government has control, joint

control or significant influence over both the reporting entity and the other entity.

Transactions with related parties that are considered to be individually or collectively significant

include transactions with the Government of Canada, and departments thereof and all federal

Crown Corporations.

The majority of transactions with the Government of Canada were with the Department of Finance

(“DOF”) related to the production, management and delivery of Canadian circulation coins which

are negotiated and measured at fair value under a three year Memorandum of Understanding,

where pricing is agreed to annually in the normal course of operations.

The transactions with Department of Finance are as follows:

October 1,

2016

September 26,

2015

October 1,

2016

September 26,

2015

Revenue from DOF $ 22,890 $ 20,628 $ 69,022 $ 68,059



(Payable) Receivable (to) from DOF $ (271) $ 8,110

As at

The majority of transactions with Crown corporations were for the sales of numismatic product.

Due to the retrospective application of IAS 16 at the date of transition to IFRS on January 1, 2010,

depreciation expenses that have been charged under Canadian GAAP to the Department of

Finance at a rate in excess of actual depreciation expenses incurred under IAS 16 have been

adjusted by the amount of $8.2 million at that time. This amount was included in accounts payable

and accrued liabilities on the consolidated statement of financial position since it was payable on

demand by DOF. Starting in 2011, the Corporation began reducing its billing to the DOF by $0.5

million annually and the remainder of $5.7 million as at October 1, 2016 (December 31, 2015 -

$5.7 million) will be deducted in future billings over the next 11 years.






21. COMMITMENTS, CONTINGENCIES AND GUARANTEES

21.1 Precious metal leases

In order to facilitate the production of precious metal coins and manage the risks associated with

changes in metal prices, the Corporation may enter into firm fixed price purchase commitments, as

well as precious metals leases. As at October 1, 2016, the Corporation had $12.6 million in

outstanding precious metal purchase commitments (December 31, 2015 – $47.0 million).

At the end of the period, the Corporation had entered into precious metal leases as follows:

Ounces October 1, 2016 December 31, 2015

Gold 163,212 321,747

Silver 10,497,733 6,746,665

Palladium 6,494 8,594

Platinum 18,727 13,042

As at

The fees for these leases are based on market value. The precious metal lease payment

expensed for the 39 weeks ended October 1, 2016 was $5.0 million (39 weeks ended September

26, 2015 - $3.3 million). The value of the metals under these leases has not been reflected in the

Corporation’s consolidated financial statements since the Corporation intends to settle these

commitments through receipt or delivery of the underlying metal.

21.2 Base metal commitments

In order to facilitate the production of circulation and non-circulation coins (for Canada and other

countries) and manage the risks associated with changes in metal prices, the Corporation may

enter into firm fixed price purchase commitments. As at October 1, 2016, the Corporation had

$15.8 million (December 31, 2015 - $22.5 million) in purchase commitments outstanding.

21.3 Trade finance bonds and bank guarantees

The Corporation has various outstanding bank guarantees and trade finance bonds associated

with the production of foreign circulation coin contracts. These were issued in the normal course of

business. The guarantees and bonds are delivered under standby facilities available to the

Corporation through various financial institutions. Performance guarantees generally have a term

up to one year depending on the applicable contract, while warranty guarantees can last up to five

years. Bid bonds generally have a term of less than three months, depending on the length of the

bid period for the applicable contract. The various contracts to which these guarantees or bid

bonds apply generally have terms ranging from one to two years. Any potential payments which

might become due under these commitments would relate to the Corporation’s non-performance

under the applicable contract. The Corporation does not anticipate any material payments will be

required in the future. As of October 1, 2016, under the guarantees and bid bonds, the maximum

potential amount of future payments was $9.6 million (December 31, 2015 - $14.4 million).






21.4 Other commitments and guarantees

The Corporation may borrow money from the Consolidated Revenue Fund or any other source,

subject to the approval of the Minister of Finance with respect to the time and terms and

conditions. Since March 1999, following the enactment of changes to the Royal Canadian Mint Act,

the aggregate of the amounts loaned to the Corporation and outstanding at any time shall not

exceed $75 million. As of October 1, 2016 the approved short-term borrowings for working capital

within this limit were not to exceed CAD$25 million or its US Dollar equivalent.

To support such short-term borrowings as may be required from time to time, the Corporation has

various commercial borrowing lines of credit, made available to it by Canadian financial institutions.

These lines are unsecured and provide for borrowings up to 364 days in term based on negotiated

rates. No amounts were borrowed under these lines of credit as at October 1, 2016 or September

26, 2015.

The Corporation has committed as at October 1, 2016 to spend approximately $3.2 million

(December 31, 2015- $4.3 million) on capital projects.

Total estimated minimum remaining future commitments are as follows:

2016 2017 2018 2019 2020

2021 and

Therafter Total

Operating Leases $ 2,161 $ 4,398 $ 4,335 $ 2,229 $ 1,998 $ 7,536 22,657

Other Commitments (no leases) 28,297 5,913 3,560 1,799 1,072 738 41,379

Total $ 30,458 $ 10,311 $ 7,896 $ 4,028 $ 3,071 $ 8,274 $ 64,036

There are various legal claims against the Corporation. Claims that are uncertain in terms of the

outcome or potential outflow or that are not measurable are considered to be a contingency and

are not recorded in the Corporation’s consolidated financial statements. A provision of $0.7 million

for a potential legal obligation was included in accounts payable and accrued liabilities as at

October 1, 2016 (December 31, 2015 - $0.7 million). The amount and timing of the settlement of

the provision is uncertain.

22. RECLASSIFICATION

During the current year the Corporation modified the consolidated statement of comprehensive

income classification of certain expenses from administration expenses to cost of sales to more

appropriately reflect the nature of the expenditures. Comparative amounts provided for the prior

period were reclassified for consistency.

Since the amounts are reclassifications within operating activities in the consolidated statement of

comprehensive income, this reclassification did not have any effect on the consolidated statement

of financial position.






23. SUBSEQUENT EVENT

Canadian Circulation Operations Return to For-Profit Model

On October 25, 2016, the Minister of Finance tabled Bill C-29, A Second Act to implement certain

provisions of the budget tabled in Parliament on March 22, 2016 as well as other measures. In

particular this Act amends the Royal Canadian Mint Act to enable the Mint to anticipate profit with

respect to the provision of all goods or services, and removes the restriction that the Mint shall not

anticipate profit with respect to the provision of any goods or services to Her Majesty in right of

Canada.

Bill C-29 received Royal assent on December 15, 2016. Accordingly, the Mint will recognize profit

from the provision of any goods or services to Her Majesty in right of Canada beginning December

15, 2016.

The Mint expects to come to an agreement with the Department of Finance on an updated

Memorandum of Understanding that governs the provision of circulation products and services in

early 2017.

Face Value Program Phase Out

After five years of acquiring new customers and growing its overall Numismatic business through

its Face Value program, the Mint is changing the way it will attract future customers to coin

collecting, which means that it is no longer selling Face Value coins effective January 1, 2017.

second quarter report - royal canadian mint · narrative discussion 39 weeks ended october 1, 2016...

Documents